Should a judgment-proof debtor pay card debt anyway?

At some point, you can be too old, too poor to worry about credit rating

Tanisha Warner is the communications manager for Money Management International, where she manages educational content designed to teach consumers about personal finance topics. She writes "Credit Care," a weekly reader Q&A about debt issues, for CreditCards.com.

Dear Credit Care,
My father is 91 years old and has no assets of any kind other than some furniture and clothing. My mother is 88, blind, and in an advanced state of dementia. They live on Social Security and a small military pension. But they have two credit cards, both of which maxed out sometime ago and on which he has been faithfully paying the minimum payments for several years. One card has an interest rate of 11.9 percent and the other a rate of 17.9 percent. What will happen if he just stops paying on these? He does not care about his credit rating, since he does not want to borrow any more. -- Donna

Dear Donna,
Your father is in a situation known as "judgment proof." This simply means that because he has no real property or assets and his only income is from Social Security benefits and a military pension, your father's creditors would likely have no legal recourse to collect a debt from him. So, if he decided to stop making payments on his unsecured credit card debt, he would probably not suffer any financial consequences.

His Social Security benefits and military pension would be exempt from wage garnishment and as long as his benefits are directly deposited into his bank account, his funds would also be exempt from a bank account garnishment. Sounds good so far, however, there is a big "but" coming.

Here it is: The creditor is free to contact your father and attempt to collect the debt outside of the courts. Depending on how much he owes, your father would likely receive daily phone calls and written attempts to collect on what he owes. He could always ignore/screen the phone calls and throw out the mail, but for someone his age, this could be stressful. If he does decide to stop paying on these accounts, the Fair Debt Collection Practices Act states that he can request in writing not to be contacted about the debt again. In that case, the collector may only contact him again to let him know of a specific action that the collector intends to take.

I would recommend that you communicate with your father and ask him how he would like to handle his credit card debt. For many in his generation, allowing a debt to go unpaid is something they would never consider. If he falls into that category, you might suggest that your father contact a nonprofit credit counseling agency accredited by the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling and speak to a certified credit counselor. It could be that you father would qualify to repay his credit card debt through a debt management plan. Under most circumstances the interest rate charged on his accounts would be reduced. He would make only one payment to the counseling agency each month that would be disbursed to his creditors.

Another option is for your father to contact an attorney that specializes in settling debt. The attorney could explain the financial and life situation of your parents and attempt to negotiate a settlement for less than the full amount owed on the two credit card accounts.

Ultimately, these are your father's credit card accounts and his decision on how best to handle the balances owed. Should he choose to continue paying the minimum amount due, respect his decision unless it means he is going without necessities such as food and health care in order to make the payments.

Tanisha Warner is the communications manager for Money Management International, the largest nonprofit, full-service credit counseling agency in the United States. She manages educational content designed to teach consumers about personal finance topics. You can find more money management advice on Blogging for Change and MMI's Facebook page.

Published: June 18, 2012

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